The federal trial of the last foreseeable defendant in Minnesota’s largest criminal fraud begins Monday.

James Fry, a dentist-turned-hedge-fund-manager from Spring Park, faces 12 counts accusing him of securities and wire fraud and making false statements to the Securities and Exchange Commission in his role as a financial conduit in the Tom Petters-directed Ponzi scheme that bilked investors of $3.65 billion.

Fry, 59, steadfastly denies the charges while others around him have pleaded guilty for their role in providing investor money to Petters for the purported purchase of discounted consumer electronic goods and sale to big-box retailers in transactions that never happened.

The money from new investors, including several other hedge funds, was used to pay off loans to a Petters company from earlier investors.

But the Fry case is complicated by the presence of Frank Vennes Jr., the ex-convict born-again Christian who enlisted Fry’s assistance to raise money for Petters beginning in 1998.

Vennes was set to go to trial with Fry last February when he abruptly decided to plead guilty to counts of aiding and abetting securities fraud and unlawful money activity. He has yet to be sentenced.

Fry’s defense all along has been that Vennes directed all investments between Fry’s Arrowhead Capital Management funds and Petters.

“He was the intermediary between the Petters fraud and Mr. Fry,” Fry’s attorneys wrote in a brief after the Vennes guilty plea. “He insulated Petters from anyone who might get close enough to him to discover what was going on.”

Vennes almost certainly will be a witness during the upcoming trial before U.S. District Judge Richard Kyle, which is expected to last two to three weeks.

Former Arrowhead executive Michelle Palm is also expected to be a government witness in the case. Palm pleaded guilty to one count of securities fraud and one count of making false statements to the SEC more than two years ago and is awaiting sentencing.

Another likely witness is Deanna Coleman, the top Petters lieutenant during the more than decade-long Ponzi scheme who eventually blew the whistle on the fraud. Coleman agreed to become a government informant and even wore a concealed tape recorder in the weeks leading up the Ponzi scheme’s collapse in September 2008.

Federal prosecutors contend they do not have to show that Fry knew that the electronics transactions promoted by Petters were fictitious.

In a trial brief filed two weeks ago, prosecutors said, “Instead the government alleges that Fry lied to investors about significant aspects of the way the financing transactions between PCI [Petters Cos. Inc.] operated.”

The brief continued, “Fry’s lies prevented investors from accurately assessing the safety and soundness of their investment and contributed to Petters’ Ponzi scheme becoming a multibillion dollar fraud.”

Prosecutors allege that Fry never informed his investors about Vennes’ criminal background out of concern that it would scare them off. The government also contends that Fry told investors that payments on their investments were coming directly from big-box retailers when they came directly from PCI. And, third, the charges against Fry say he failed to tell investors when payments on their promissory notes were late. The government also alleges that Fry lied to the SEC after the scheme collapsed.

In an interview last week, Friedberg said Vennes’ criminal background was immaterial because Vennes was only the middleman between the hedge fund and Petters. Friedberg also said Fry believed that the alleged payments from big-box retailers went to PCI 24 hours before being paid to Arrowhead, and that only 12 notes were ever past due and that all were current at the time that the Petters empire imploded.

“Mr. Fry was not only a victim of Mr. Petters. He was a victim of Mr. Vennes,” said Fry’s earlier brief filed by Friedberg and Richman.

According to government charges, both Vennes and Fry benefited handsomely from their dealings with Petters and PCI: $100 million in commissions for Vennes over a 15-year span and $42 million for Fry over 10 years.

Jury selection for the upcoming trial was conducted by Kyle on Friday. Opening arguments by the prosecution and defense teams are scheduled to begin at 9 a.m. Monday.

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